The Myth or Reality of US Energy Independence
January 3, 2013
US “independence” from energy imports has been a key source of political dispute ever since the October War in 1973 and the Arab oil embargo that followed. Much of this debate has ignored or misstated the nature of the data available on what the US options are, as well as the uncertainties involved in making any long range projections.
This situation has become more critical during the last year as it becomes increasingly apparent that the US has far more commercially exploitable oil and gas reserves than most previous estimates have indicated. Some estimates go so far as to project the US could actually become an energy exporter in the future.
The Burke Chair at CSIS has prepared a new analysis of the recent trends in official International Energy Agency (IEA) reporting and US Energy Information Administration (EIA) analysis of these issues. This Burke Chair report, “The Myth or Reality of Energy Independence”, addresses the need for fundamental changes in the way the US government assesses the risks of energy import dependence and the cost-benefits of energy independence. The analysis is entitled The Myth or Reality of Energy Independence and is available on the Burke Chair web site at https://csis.org/files/publication/130103_us_energy_independence_report.pdf.
Keeping US “Energy Independence” in Perspective
There is every reason to develop US domestic energy resources, and to explore the degree to which the US can cost-effectively reduce its dependence on imports, while carefully considering the longer-term impact of such measures in depleting US supplies for the future. There are also highly respected US analysts who believe that the US can virtually eliminate imports at some point between 2020 and 2030, under best case assumptions.
Such estimates should, however, be kept in perspective. They do not affect the US near-term dependence on direct energy imports for at least the next decade, even under the most optimistic assumptions. These estimates do not affect the fact the US must pay world oil prices in an energy crisis, nor do they take into consideration the fact the US is dependent on the health of a broader global economy that is becoming steadily more dependent on the security Gulf energy exports.
In fact, accurate estimates on the true nature of US import dependence should include metrics of how much oil and other energy America imports from Europe and Asia that are directly dependent on Gulf and other MENA oil and gas exports. Moreover, these estimates do not adequately consider the wisdom of a “deplete America first” approach to oil and gas procurement.
These are critical issues and come at a time when the US must make hard strategic and budgetary considerations. The US is faced with tough choices considering cuts in military spending, at the same time as the US-Iranian military and security competition is intensifying in what may lead to a regional war, and the Gulf faces Iranian threats to close the Strait of Hormuz. Iran’s nuclear programs and Iran’s reactions to sanctions and preventive strikes are only part of the risks involved. The steady growth of Iran’s capabilities for asymmetric warfare illustrate its growing willingness to threaten or attack US, Arab Gulf, and European interests – the most important of which is the flow of Gulf petroleum exports to the global economy.
There is no question about US strategic dependence in the near- to mid-term. While the volume of Gulf exports varies according to demand and the state of the global economy, the US Energy Information Agency (EIA) estimated in January 2011 that the Strait of Hormuz, which is located between Oman and Iran, is the world’s most important oil chokepoint. Some 15.5 to 17 million barrels a day have flowed through the Strait to world markets in recent years, or some 30% of global petroleum exports. This has been 33% to 40% of all seaborne traded oil, and approximately 17% of all oil traded worldwide – and these percentages do not even take into account significant trade in liquefied natural gas (LNG).
In a similar report issued in January 2012, the Energy Information Agency of the US Department of Energy reported that a daily oil flow of almost 17 million barrels moved through the Strait of Hormuz in 2011, up from between 15.5-16.0 million barrels a day in 2009-2010. On average, 14 crude oil tankers per day passed through the Strait in 2011, with a corresponding amount of empty tankers entering to pick up new cargos. More than 85 percent of these crude oil exports went to Asian markets, with Japan, India, South Korea, and China representing the largest destinations.
The EIA has just issued a new estimate of US import dependence that shows continued US strategic dependence on oil imports lasting until 2040. These estimates also indicate that this dependence will begin to increase again after 2030.
Any Monday morning economist can make back-of-the-envelope calculations, or provide their own estimates, but only a few organizations have the resources to model US supply and demand. The US Department of Energy’s EIA has such resources available, and is the leader in the field. These estimates are shown in the “Figures” section of this analysis.
The EIA estimate indicates that despite declining US oil and energy liquids imports, the US will remain dependent on energy imports and the security of the global oil economy through 2040. The EIA Annual Energy Forecast for 2013 states that,
U.S. dependence on imported liquid fuels continues to decline in the AEO2013 Reference case, primarily as a result of increased domestic oil production. Imported liquid fuels as a share of total U.S. liquid fuel use reached 60 percent in 2005 before dipping below 50 percent in 2010 and falling further to 45 percent in 2011. The import share continues to decline to 34 percent in 2019 and then rises to about 37 percent in 2040, due to a decline in domestic production of tight oil that begins in about 2021 (Figure 11).
Such estimates are uncertain and conflict with other reporting. The EIA report is partially contradicted by a report from the International Energy Agency (IEA) that indicates the US might be a net exporter of natural gas by 2020 and become self-sufficient in terms of its net energy needs by 2035. These IEA data draw on estimates of the impact on US energy supply of recent improvements in drilling technique that allow the US to access first shale gas and later harder-to-reach oil deposits, along with gradual increases in efficiency and renewable energy generation.
Both the EIA and IEA agree that the world economy will become steadily more dependent on Gulf energy exports through 2035-2040. And once again, it must be stressed that as the US pays world oil prices, it is steadily more dependent on the health of the global economy. Additionally, the US is a massive indirect importer of Gulf and MENA oil through its imports of Asia and other manufactured goods – imports that remain dependent on energy from this region not calculated by either EIA or IEA.
The US Energy Information Agency estimates regarding these trends are shown in other figures in the Burke Chair’s new analysis. They indicate there will be a steady increase in a Gulf-dominated OPEC production capacity through 2040 – rising from some 25 million barrels a day of capacity in 2008 to some 37 million in 2040. While the 2013 forecast only shows the total for Middle East OEC, it does not materially differ from the earlier EIA International Energy Outlook for 2010 estimated that Gulf oil production capacity will rise from 28% of the world total today to 31% in 2035 and do so in spite of major increases in production in other areas and alternative fuels.
In short, even if optimistic forecasts of cuts in direct US energy imports eventually prove to be correct, this will not affect the critical strategic importance of the Gulf and other major energy exporters the US for the foreseeable future. Long after 2020, US consumers will still have to pay global prices for their energy needs in any energy emergency affecting major energy exports.
While America may not be a major direct importer of Gulf or other oil exports in the future, it is still susceptible to increased world prices for all its oil and other energy costs in the event of a war or major crisis in the Gulf. Any reduction—or expected reduction—in global supply will increase such costs. Moreover, the US is projected to become even more dependent on a global economy by way of imports of manufactured goods that require the secure flow of Gulf energy exports to Europe and Asia.
Making a Meaningful Assessment of Energy Import Dependence vs. Independence
The end result is that the US politics of calling for “energy independence” have little – if any – impact on either the US threat perceptions, or plans for the defense of the Gulf. In practice, US national security planners accept the fact that the Gulf is, and will remain, the location of a strategically vital share of the world’s petroleum resources.
There is, however, a clear need to reassess the way the US analyzes import dependence and the prospects for energy independence after 2020. There are two sets of improvements the US must make it is analysis and planning. The first deals with how US energy analysts make energy forecasts. The second lies in how the US addresses the longer-term considerations related to Gulf security.
Rethinking Forecasting of Energy Dependence
The US cannot afford to allow its analysis of its dependence on imports, and prospects for energy in dependence, to become politicized or lack of effective analysis. For years, the US government has frozen many elements of its analysis around a fundamentally false model dating back to the Carter Administration. As a result, EIA—despite its considerable potential—fails to address key issues.
EIA is the only agency in the US with the capacity to model detailed, credible forecasts of US and global energy supply and consumption. Its forecasts now need to be tied together in a different analytic model that looks at least three decades into the future and is given top priority in US energy analysis.
To be specific, the US needs to give the EIA the resources and jurisdiction necessary to carry out a comprehensive modeling and analysis of energy import needs and the prospects for energy independence on an annual basis, and to encourage the IEA and OPEC to do the same.
This effort should:
- Explicitly model and analyze the prospects for US energy independence by type of fuel with a focus on liquids and transportation needs – the major sources of import dependence.
- Estimate the impact of new technologies and industrial practices on US supply, import dependence, and the global economy.
- Estimate the full range of US energy import dependence, including the size of indirect energy imports in the form of manufactured goods.
- Estimate the level of US dependence on the global economy in terms that explicitly analyze US and global dependence on the secure flow of energy exports and imports with special attention to US dependence on the stability and growth of key European and Asian trading partners.
- Restructure and update its analysis of the risk of interruptions in the flow of energy exports to cover the full range of US imports by sector and the impact of interruptions in other key flows of exports to regions like Asia on the US economy.
- In the process, reexamine the role and size of the US Strategic Petroleum Reserve.
- Examine the costs and benefits of seeking energy independence in the near- and mid-term versus accepting some level of dependence on imports. The US should not seek independence without a risk assessment of the depletion of US energy reserves.
- Run a range of cases looking at the extremes and most-likely cases that explicitly state the level of uncertainty as the results move progressively into the future – earning users of the growing uncertainty with each five-year increment in the estimate.
Rethinking the Security Aspects of Energy Exports and Imports
The US cannot ignore the risks posed by Iran, terrorism, and the wave of instability in the Gulf and other key areas that provide major energy exports. Rather, the US needs to study the extent to which the US should provide the military forces to secure energy exports on a global basis.
In the case of the Gulf, such a study should:
- Examine options for reducing the dependence of forward deployed US forces over time by strengthening the capabilities and unity of the Gulf Cooperation Council states and other regional allies like Jordan, Turkey, Egypt, etc. Moving some US forces “over the horizon” over time could offer savings and reducing tensions in the region and such shifts could become more significant if the Iranian regime changed its current behavior.
- Consider the degree to which a more multinational approach to outside aid in providing security assistance could reduce US costs without reducing US security.
- Carry out similar regional analysis of the longer-term global energy security strategy and force deployments the US should make in regard to African and Latin American and other major energy export regions.
- Rethink the role and membership of the International Energy Agency, and the scope of its membership and the terms of the Agreement on an International Energy Program" (I.E.P. Agreement) in the light of the radical shifts in energy import dependence, and is impact of the global economy, that have occurred since the present system was established in 1974.
Rethinking US Security Interests and Resources
After thorough examination, the US may still conclude that its present security presence in the Gulf and security relations with the GCC states and other regional allies present the most cost-effective use of its resources. It should, however, still consider the trade-offs involved, examine the ways it can enhance the GCC and other regional allies, and assess the longer-term prospects for creating a multilateral and more “over-the-horizon” security structure based on global cooperation rather than global competition.
Depending on changes in the behavior of the Iranian regime, and the evolution of the security situation in Asia, it may be possible—over time—to create a form of the International Energy Agency with a membership and mission that addresses international energy issues in a cooperative rather than competitive manner. The scope of such an agreement can be modeled on the core commitments of the 1974 Agreement on the International Energy Program (IEP) which led to a multilateral security structure that included the US, China, India, Japan and other Asian powers. This type of action might provide both the military cooperation that would reduce the need for US power projection, as well as address concerns of other powers over their future energy security.